Home' SMSF Professionals Association of Australia : SPAA Yearbook 2013 Contents SPAA.2013.35
market forces -- is never going to
be something you can mitigate.
The question we need to ask on
people's behalf is whether or not they
should be exposed to that market
risk -- is it the appropriate level of
exposure for them? -- not whether
it can be mitigated, because it can't.
That's where you're talking about
investment advice, looking at the
client's circumstances and conditions,
and taking that into account."
Alex Dunnin, head of research
at superannuation research rm
Rainmaker, says the growth of SMSFs
has created both philosophical and
practical dilemmas for the industry.
"On the one hand, why should we be
alarmed by the growth in numbers
of SMSFs? Because this is just people
running their own money? Why
should we be worried about that? [We
shouldn't], as long as they understand
the risks, and if it all blows up, they
take responsibility and take their own
measures to seek redress and don't
expect a government bailout.
"But on the other hand, as
an industry, we never built
superannuation in the expectation
that one-third of that money was
going to be e ectively unregulated.
So, it does raise a massive governance
problem," says Dunnin.
Because of Australia's progressive
tax system and the concessional
tax treatment of superannuation,
says Dunnin, a big chunk of the
super contributions of people in
self-managed super is e ectively
paid for by taxpayers -- through the
concessional tax breaks.
"The problem is that people are
perfectly entitled to do this, as long
as they understand that the rst S in
SMSF stands for 'self.' The problem is
the moral hazard when these funds
blow up: the classic example is the
Trio Capital case -- those people
invested with a particular manager, in
an unregulated system, and they were
not protected by government -- and it
put the government in a very di cult
"The 'moral hazard' argument is a
very valid one. What would happen if
a Trio or a Storm or a Westpoint went
through the SMSF sector again? The
sector by and large is unadvised,"
La Greca says the major problem
is that no-one can be sure how
many SMSF trustees actually have
some form of support in terms of
investment advice. "If, on top of all of
the requirements under the SIS Act
to which SMSFs have to conform, we
were to try to put on others -- to say,
'you must demonstrate that you have
an investment adviser' -- the major
issue there is that if we were going to
do that, it should have happened ve
"We don't say to people who
go into the sharemarket, 'Do you
understand the sharemarket?' So can
we say to SMSFs, 'We can't have you
mucking around with your retirement
income'? We could say, 'You can't set
up an SMSF unless you've gone to a
licensed SMSF-accredited adviser or
accountant, and received advice that
it is actually appropriate for you.'"
One of the things that could
happen, says La Greca, is that, just
as an SMSF's auditor has to quote its
registration number on the fund's
return, maybe there could also be
some sort of registration of the fund's
compliance and investment support
services, as part of that return.
"If we were to have that sort of
mechanism, that's ne, but the
question is, how do you retrospectively
apply it to the existing 500,000 funds?
Politically, it would make sense to do
that, but the backlash would be huge,"
says La Greca.
Colley says the problem is that
the rise in the number of funds is
outstripping the growth of specialist
service providers. "SPAA has 1465
accredited specialists, and has just
over 1800 members. The number
of specialist advisers is growing all
the time; some of the adviser dealer
groups are actually requiring that
they be specialist members of SPAA
before they're allowed to go out and
talk about SMSFs.
"Others don't insist that it be a
SPAA quali cation, but rather some
other quali cation that relates to
self-managed funds -- so if they're an
accountant, they go to the Certi ed
Practising Accountants (CPA) or
the ICAA (Institute of Chartered
Accountants in Australia) to get some
specialist designation from them.
Advisers are de nitely moving into
that space, but the growth rate there
might not match the growth rate in
fund numbers," says Colley.
The SMSF structure is at the "logical
end of the super pathway", he says,
but there may well be a "natural
ceiling" on fund numbers. "I think
we have established a pretty clear
pathway, where people start o with
what will be a MySuper product, and
over time, they will progress up the
chain through Super Choice to maybe
an SMSF. I think that's just going to be
the progressive cycle."
But the other side of that coin,
says La Greca, is that SMSF numbers
could plateau. "There is an issue that
no-one wants to talk about, and that
is what happens when the more
engaged trustee, who looked after
the SMSF, passes away, and the more
passive person is left in the fund. Or
what happens when the trustees are
not capable of being trustees in the
"We're thinking, from all the
indications, that there will be constant
in ow of SMSFs, as people open them
up as their balances get bigger. But
we also have to think that the upward
trend might get to a point -- don't ask
me where it is -- where there might be
a plateauing," says La Greca.
James Dunn is a freelance journalist
and media consultant, specialising in
nance and superannuation.
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